Publications
Credit frictions and participation in over-the-counter markets
Journal of Economic Theory, September 2020
A study on the role of credit in OTC markets in the presence of endogenous payment and inventory capacity constraints.
This paper formalizes a Nash bargaining game between two players constrained by capacity decisions made prior to entering the negotiation. In equilibrium, strategic interactions drive capacity choices to zero and shut trade down despite the existence of gains from trade. The game is embedded in a general equilibrium model of decentralized asset trade with credit frictions to investigate the interaction between availability of credit and investors’ participation, modeled through their choices of inventory and payment capacity. A partial access to credit is sufficient to restore trade. The strategic interactions between payment capacity and inventory generate endogenous heterogeneity in holdings, trade sizes and prices, and complementarity between money and credit.
Gradual bargaining in decentralized asset markets
Review of Economic Dynamics, October 2021
Joint with Guillaume Rocheteau,
Tai-Wei Hu,
and Younghwan In
A novel approach to bargaining for models of OTC markets with unrestricted asset portfolios. It is based on the notion of agendas: portfolios can be partitioned and sold sequentially, one bundle at a time.
We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. According to this approach, which encompasses the Nash (1950) solution as a special case, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. We construct two alternating-offer games consistent with this approach and characterize their subgame perfect equilibria. We show the revenue of the asset owner is maximized when assets are sold one infinitesimal unit at a time. In a general equilibrium model with endogenous asset holdings, gradual bargaining reduces asset misallocation and prevents market breakdowns.
Bargaining under liquidity constraints: Nash vs Kalai in the laboratory
Journal of Economic Theory, September 2025
Joint with John Duffy and
Daniela Puzzello
Laboratory experiment with minimal structure seeking to identify how individuals bargain over two-dimensional terms of trade (prices and quantities) and how bargaining outcomes vary as a function of the buyer's payment capacity.
We report on an experiment in which buyers and sellers engage in semi-structured bargaining along two dimensions: how much of a good the seller will produce and how much money the buyer will offer in exchange. Our aim is to evaluate the empirical relevance of two axiomatic bargaining solutions, the generalized Nash bargaining solution and Kalai’s proportional bargaining solution. These bargaining solutions predict different outcomes when buyers are constrained in their money holdings. We find strong evidence in support of the Kalai proportional solution and against the generalized Nash solution when buyers face liquidity constraints. Our findings have policy implications, e.g., for the welfare cost of inflation in search-theoretic models of money.
Working Papers
Money shortages and complementary currencies in small local economies
Conditionally accepted, International Economic Review
Joint with Cristian Frasser
A previous version titled "Complementary currencies and liquidity: The case of coca base money," is available here.
This paper rationalizes the adoption of a complementary currency (CC) in a small, local economy. In our model, a local money shortage occurs when the local supply of official currency, endogenously determined through trade flows with a larger external economy, is too low for local economic activity to reach first best. Under these circumstances: (1) a CC supplements liquidity and boosts local economic activity, however at the expense of trade with the external economy; (2) local trade is inefficiently low relative to external trade, implying that the supply of CC that maximizes local welfare is strictly positive.
Dynamics of market power in monetary economies
Revise & Resubmit, European Economic Review
Joint with Jyotsana Kala and Lu Wang
We study the dynamic interplay between monetary policy and market power in a decentralized monetary economy. Building on Choi and Rocheteau (2024), our key innovation is to model rent seeking as a process that takes time, allowing market power to evolve gradually. Our model predicts that a gradual reduction in the nominal interest rate causes a simultaneous increase in rent-seeking effort and producers’ market power, consistent with the stylized correlation observed in the US over the last few decades. Producer entry can however reverse this relation in the short run, and neutralize it in the long run. Indeterminacy and hysteresis emerge when consumers benefit from valuable outside options, with short-run monetary policy shocks potentially locking the economy into high- or low-market-power equilibria in the long run.
Central bank digital currency: Financial inclusion vs disintermediation
Submitted
Joint with Jeremie Banet
We analyze and quantify the trade-off between providing broader access to digital payments and poaching deposits away from private banks that arises with the introduction of a CBDC.
An OLG model where currency choices are endogenously driven by income heterogeneity is developed to analyze the simultaneous impact of a Central Bank Digital Currency (CBDC) on financial inclusion and bank funding. Pre-CBDC, wealthier agents use deposits while poorer agents use cash, remaining unbanked. CBDCs with higher fixed costs and interest rates are adopted by deposit holders and increase inclusion by raising deposit rates. CBDCs with lower fixed costs and interest rates are adopted by cash holders, directly increasing inclusion and inducing more favorable inclusion-intermediation trade-offs. A US calibration allows us to quantify these trade-offs conditional on CBDC design.
The macroeconomics of labor, credit, and financial markets imperfections
Revise & Resubmit, Journal of Monetary Economics
Joint with Miroslav Gabrovski and Ioannis Kospentaris
A microfounded model of job creation and corporate lending that explores and quantifies the impact of loan-servicing costs and secondary loan trading on real economic outcomes.
An increasing share of corporate loans, a critical source of firm credit, are sold off banks’ balance sheets and actively traded in a secondary over-the-counter market. We develop a microfounded equilibrium search-theoretic model with labor, credit, and financial markets to explore how this secondary loan market affects the real economy, highlighting a trade-off: while the market reduces the steady-state level of unemployment by 0.6pp, it amplifies its response to a 1% productivity drop from 3.6% to 4.3%. Secondary market frictions matter significantly: eliminating them would not only reduce unemployment by 1.2pp, but also dampen its volatility down to 2.7%.
Social engagement and the spread of infectious diseases
A random matching model of disease transmission based on SIS/SIR epidemiological models, with endogenous participation and precaution margins.
This paper endogenizes the spread of an infectious disease in a random matching model with pairwise meetings, where economic and social gains arise explicitly from person-to-person contacts. When agents can decide whether to engage in interactions, complementarities in the participation decisions of individuals susceptible to contracting the disease generate a large multiplicity of equilibria through adverse selection. The lower the participation of susceptible agents, the higher the prevalence of infection in the pool of participants, further discouraging the participation of susceptible agents. I document a variety of infection dynamics, including plateaus and multiple waves. Adverse selection leads to too much isolation from susceptible agents, and in the calibrated version of the model, the cost of forgone interactions offsets the welfare gains of flattening the curve and mitigating the human toll. When agents cannot opt out of the market but can instead choose whether to wear a mask, the equilibrium is unique. In the calibrated model the human toll is lower than when considering the participation margin, yet at a significantly smaller cost.
